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Money is a central concept for everyone no matter what age you are. In this project, you will explore exponents using the compound interest formula to make conclusions on investments.
In this project, you will:
Use exponents to calculate the amount of interest earned on an investment.
Evaluate formulas with exponents.
Convert interest rates to decimals.
Apply the order of operations.
To complete this project you will:
Complete the Financial Report Worksheet to guide you in developing your budget. Be sure to show all work!
Complete a 2-page, double-spaced, APA-formatted report. In the report, you need to present your findings and explain your conclusions on interest rates and compounding frequency. Thoughts to include in the report include: Is a savings account a good way to earn interest? When looking at opening a savings account, what should you look for: higher interest rate or more frequent compounding?
Be sure to cite your sources for the interest rates from the chosen financial institution!
Financial Report Worksheet
Directions: Complete the financial report worksheet to help you with your calculations to create the APA report.
1. Go to your financial institution’s website or a local financial institution’s website and find the interest rate and compounding frequency (monthly, quarterly, annually, and so on) for a savings account. Record that here:
2. Use the compound interest formula: A=P(1+r/n)^nt where r is the interest rate as a decimal, n is the number of times it is compounded in the time frame, t is the amount of time, and P is the starting value. Calculate your balance if you invest $1,000 for 1 year.
3. Using the compound interest formula, calculate your balance if you invest $1,000 for 5 years.
4. Now select a new compounding period (monthly, quarterly, annually, and so on) and redo your calculations from number 2 & 3, using the same interest rate.
5. Now select a new interest rate from another financial institution that is different than your starting one. Redo your calculations from numbers 2 & 3 with the new rate but keeping the same compounding frequency that you used in 2 & 3.
6. What did you learn about comparing the compounding frequency that interest is compounded?
7. What did you learn about comparing the interest rate?